Tax-loss harvesting is deliberately selling an investment that is down to realize a loss, then using that loss to offset taxable gains (and, in some systems, a limited amount of ordinary income). The goal is to lower this year's tax bill without necessarily changing your plan.
Example (illustrative, US framing): you have a $1,000 realized capital gain from one winning sale. You also hold a position sitting at a $1,000 loss. Selling the loser realizes that $1,000 loss, which can offset the $1,000 gain — potentially reducing the gain you are taxed on to zero for the year. In the US, losses beyond your gains can offset a limited amount of ordinary income, with the remainder carried forward.
The catch is the wash-sale rule: if you rebuy the same or a substantially identical investment within 30 days, the US tax code disallows the harvested loss (deferring it into the new shares' cost basis). That is why harvesting is done carefully — often waiting out the window or moving to a similar-but-not-identical holding to stay invested.
Tax-loss harvesting mainly changes the timing of tax, not always the total: selling a loser can mean a larger taxable gain later. It only helps in taxable accounts (not tax-sheltered ones like an IRA), and it should never be the tail that wags the investment decision. This is US-framed general education, not tax advice.
It is selling a losing investment to realize a loss, then using that loss to offset taxable capital gains and reduce this year's tax bill, without necessarily abandoning your long-term plan.
The wash-sale rule: rebuying the same or a substantially identical investment within 30 days disallows the harvested loss in the US, deferring it into the new shares' cost basis. This is not tax advice.
Often it mainly changes the timing. Selling a loser can lead to a larger taxable gain later, and it only helps in taxable accounts, not tax-sheltered ones like an IRA. Rules vary by jurisdiction.
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Educational research only — not investment advice.